'Ready-made' Funds — Ask the Expert

Questions for Mark Simenstad, vice president of fixed income investments

Mark Simenstad Education: B.S. in economics, St. Olaf College M.B.A., University of Minnesota Designations: Chartered Financial Analyst Family: Married with two children Favorite volunteer activity: Ski instructor for disabled individuals

Q: What is your job as head of fixed income mutual fund investments at Thrivent Financial for Lutherans?

A: I oversee the management of all of Thrivent Investment Management's fixed income mutual funds and separate accounts, including the management of high yield assets in Thrivent Financial's general account. I also have responsibility for Thrivent Investment Management's bond research and fixed income trading departments.

Q: Recently, Thrivent Investment Management began offering "ready-made" asset allocation mutual funds. What is the philosophy behind these funds?

A: When investors work with their Thrivent Financial representative to determine their overall risk temperament, they can select a Thrivent Asset Allocation Fund to match. That fund, diversified across both the fixed income and equity markets, will continue to be automatically reallocated on a quarterly basis by the Thrivent Investment Strategy Committee, of which I am a part. Think of it as "one-stop" asset allocation. These funds invest established percentages of an investor's portfolio across a range of asset classes to provide instant diversification and competitive risk-adjusted returns.

Q: What sort of investor is best suited for this type of mutual fund?

A: These funds may be well suited for an investor who wants a simplified investment solution, yet still needs the benefits of diversification and professional, institutional-quality money management.

Q: How can an automatically reallocating mutual fund benefit an investor?

A: As markets ebb and flow, it's important to take advantage of asset classes that may have declined in value, while paring positions in areas that may have done well. The Thrivent Asset Allocation Funds provide this service because the funds are constantly monitored and reallocated, or "tweaked," to take advantage of changing market conditions and to keep the portfolios in line with their stated asset allocation targets. Individuals often don't have the time or inclination to keep up with these market changes, much less find the time to do something about it.

Q: Is it true that what's bad for the equity markets is often good for bonds? Why?

A: That certainly can be the case at times in the short run when investors respond to economic concerns or falling stock prices by moving to the perceived safety of bonds. However, in the long run, stock and bond prices are more apt to move in a similar fashion in response to long-term perceptions of inflation and the economy.

Q: In a rising interest rate environment like we're in now, what should investors do with their bond allocations?

A: When rates rise, shorter maturity bond profiles typically perform better than long-term bond portfolios. It's best for investors to maintain a mix of bond funds, including high-yield, corporate and mortgage-backed bond funds, to maximize returns from bond interest income, while minimizing bond price declines that can come from rising interest rates. Above all else, don't abandon an allocation to bonds just because interest rates are heading higher. Bonds offer a valuable counterbalance to stocks. Talk to a Thrivent Financial representative for specific help.

Q: Should even young investors have at least some portion of their portfolios allocated to fixed-income funds?

A: Yes, almost always. Young investors are often told to buy stocks over bonds, but a sound approach is to have a portion in bond funds when you are younger for diversification and gradually increase that percentage as you age. The ratio of stocks to bonds depends on an individual's risk temperament and time horizon.

Q: Turning to the economy, oil costs seem to have settled in at more than $50 barrel. What does this mean long term for fixed-income investors?

A: Two possibilities exist. If higher oil prices prove to be inflationary, as businesses push their higher energy costs on to consumers via higher retail prices, then bond prices may move lower as interest rates move higher. Conversely, if higher oil prices become a drag on the economy, then bond prices will likely be more resilient as interest rates remain at relatively lower levels.

Q: Will recent steep increases in natural gas and heating oil costs have a similar effect?

A: Yes, particularly given how these costs will impact the consumer even more than gasoline prices, as heating costs are expected to be more than 50 percent higher than last season.

Q: Inflation continues to creep upward despite the Fed's rate tightening. How can investors combat inflation in this environment?

A: First of all, make sure your portfolio is diversified. In the fixed-income market, investors can make an allocation to TIPS (Treasury Inflation Protected Securities). These securities have their principal value adjusted upward by the level of inflation in a given time period. But over the long run, having a diversified mix of bond and equity funds can help minimize the effect inflation might have on your portfolio.

Q: What do you make of longtime Fed Chairman Alan Greenspan's January 31 retirement and his replacement Ben Bernanke?

A: The choice of Ben Bernanke to replace Alan Greenspan has already been well received by the financial markets. We like this choice as well. Bernanke is widely regarded as a top monetary expert and he has widespread respect from key economic policy makers, including members of the Federal Reserve Board. He is very clear in his views on the importance of keeping inflation in check. This is the primary job of the successful monetary policy, and ultimately for the financial markets.

Investing in a mutual fund involves risks, including the possible loss of principal. The prospectus, which investors should read and consider carefully before investing, contains more complete information on the investment objectives, risks, charges and expenses of the investment company. To obtain a prospectus, contact a registered representative or visit www.thrivent.com.